Pure Cycle Corp (PCYO) 2007 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Pure Cycle Corporation annual stockholder meeting. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Mark Harding, President of Pure Cycle Corporation.

Thank you, Mr. Harding. You may begin.

Thank you. Good afternoon, everyone, and I would like to welcome you to the Pure Cycle Corporation 2007 annual stockholder meeting. In addition to our stockholder meeting, what we will do this afternoon is also conduct a brief earnings release as we have just filed our first-quarter earnings 10-Q.

My name is Mark Harding. I'm the President of Pure Cycle, and I'm a director of Pure Cycle, and I will act as Chair for this meeting. I would also like to welcome other members of our Board of Directors. I would like to welcome Mr. Harry Augur, our Chairman; Mr. Mark Campbell; Mr. Dick Guido; Mr. Peter Howell; Mr. George Middlemas. Thank you all for your attendance here today.

I would also like to introduce representatives from our independent accounting firm. Are they here? They will be available for questions. If you want to submit a question to us formally, we will forward a question to them. I would also like to welcome members of our staff, Mr. Scott Lehman, our Principle Engineer, and Mr. Kevin McNeil, our Controller.

In order to conduct this meeting in an orderly fashion, we have adopted the order of business as noted in the agenda provided everyone is attending this meeting, and that is the presentation on the slideshow. We will also simultaneously broadcast this slideshow on the Internet. For those of you that are listening in on the conference call, you can log into our website and link into the presentation. You will advance the slides yourself. I will try and note where the slide transitions are in the earnings portion of the presentation.

As I said, I will be acting as Chairman of the meeting, and Mr. Scott Lehman will act as Secretary for the meeting. And I would point Mr. [Josh Pingel] from Computershare Trust Company, our transfer agent, as the Inspector for the Elections for the meeting, and I ask that he subscribe his oath of office and file that with the Secretary if he has not already done so. Okay. I note that he has done so.

The Board of Directors has picked December 1, 2006 as the record date for determination of stockholders entitled to notice of and to vote at this annual meeting or any postponement or adjournment thereof. Mr. Lehman, Secretary of the meeting, please report on the notice of this meeting and the presence of a quorum and the affidavits of mailing.

Mr. Chairman, I present to the meeting the following. A certified list of holders of common stock of the Company as of the close of business on December 1, 2006. A record date for determining stockholders entitled to notice of and to vote at this meeting. This list has been prepared by Computershare Trust Company, the Company's transfer agent, and has been on file at the Company's office and open to inspection by any stockholder for 10 days prior to this meeting. The list is available and subject to inspection by any stockholder during this meeting.

According to such lists as of December 1, 2006, there were outstandings and entitled to vote at this meeting 18,368,807 shares of the Company's common stock, each entitled to one vote. Stockholders who hold a total of over 12.8 million shares are present in person or represented by proxy. This represents approximately 68% of the outstanding shares entitled to vote at this meeting.

On the basis of that report and the provisions of the Company's bylaws and certificate of incorporation, which states that a quorum shall consist of a majority of the shares entitled to vote, I declare that a quorum is present. I also present an affidavit of [IFS Rohas], a customer service representative, for bound fulfillment solutions as to the mailing on or about December 19, 2006 of one, notice of this meeting; two, the proxy statement dated December 19, 2006, and three, proxy card for all holders of record of common stock of the Company for which we had a current address as of the close of business on December 1, 2006. Copies of these materials are attached as exhibits to the affidavit.

Thank you, Mr. Secretary. Please file these materials with the minutes of the meeting. Having a quorum, we will proceed with the business of the meeting and the first-quarter earnings release.

The press release has been distributed, and the Company's Form 10-Q has been filed with the Commission on today's date effective this morning. The press release is available as an exhibit to our Form 8-K, which is available on the Company's website. So I will proceed with our -- do you want to transition to your first slide?

The first slide is a Safe Harbor statement that certain statements in this presentation are, other than historical information, are estimates and forecasts and forward-looking statements. If you want to familiarize yourself with the forward-looking statements, please feel free to do so on the website.

This will be the agenda for the meeting. We will come back to that for the end of the shareholders meeting, but I want to go ahead and proceed with the presentation about a little bit of an overview of the Company, what it is the Company does and then some specific information about our quarter, first quarter ended November 30.

Pure Cycle is an investor-owned water Company. What we do is provide water and wastewater services. New customers predominantly in the Denver/Colorado Springs/Metropolitan market. We are a vertically integrated Company. By that, we own our water supplies, the production treatment facilities, the storage facilities and distribution system, and then we also manage systems on behalf of others. We operate primarily in two business segments. One is a construction segment.

In that construction segment, we design and construct water and wastewater systems, systems that the Company will own, as well as systems that others own. And then we have a service segment where we have an ongoing service business where we operate and maintain water and wastewater systems, systems that we own and then systems that are owned by others.

If you will make a transition to the next slide, Pure Cycle controls one of the largest unallocated portfolios of water in the Denver area. We divide our assets into three River Basins. Our Denver assets will be assets that are predominantly in the Platt River Basin. We own approximately 30 -- own or control -- approximately 30,000 acre feet of Denver Basin groundwater, approximately 8000 acre feet of Junior Platt River water and 26,000 acre feet of surplus storage in the Basin.

Most recently, the Company acquired a large block of water in the Arkansas River Valley, 60,000 acre feet of senior Arkansas River water. And then also the Company has assets in the Colorado River Basin where we have 70,000 acre feet of conditionally decreed surface storage rights in the Colorado River Basin in Western Colorado. Our East slope assets, those East slope assets being combined assets in the Platt system and the Arkansas system combines has surface capacities to provide 180,000 single-family connections. Single-family connections is our unit of measure. That is how we measure the number of connections that we can add to our system.

What are the business drivers for the Company? There are more properties looking for water than there is available to serve those properties. Water in the state of Colorado is a real property interest. So there are competing interests to provide water to various properties. There are competing properties for the limited water supply.

The Denver area continues to be one of the nation's most rapidly growing Metropolitan areas. We have a current population of a little over 2.5 million in the Denver Metropolitan area, and that is projected to exceed 3.8 million people over the next 20 years. The result is a demand for additional 350,000 single-family equivalents. That is what that growth will add to the Denver area in terms of the number of connections and about 130 million gallons per day of wastewater. The largest growth sector is anticipated to be the Southeast part of the Metropolitan area. Most of the growth in the Metropolitan area is growing easterly because we have a natural geologic barrier on the West side, and so you have a migration of differentiating that between the Northern Northeast quadrant where the Denver International Airport is and in the Southeast portion where you have a lot of the employment bases.

As the real estate consultants divide up the area, it is approximately 70% of new development will occur East of I-25 and South of Interstate 70, which is this Southeast quadrant. Accordingly, about half of all of the growth that occurs will occur in that submarket.

If you will advance to the next slide, this slide really is an analysis of the change in tap fees over the last five years. And tap fees are going to be the most indicative tangible market valuation of the value of water. As you will see in 2003, our tap fees, and our tap fees are set by an average of the three surrounding municipal water providers. 2003 our tap fees were just over 11,000, and then we are looking at tap fees going somewhere close to $20,000 this year, which is going to be a significant change since we got into the business. 75% increase over that period of time.

I would like to summarize some of the significant events in 2007. Subsequent to our quarter-end at November 30, the State Land Board, who is our partner in the Denver Basin water supply, announced the selection of a development partner for a portion of their property that shows an Australian-based development partner, Lend Lease. Lend Lease is a very large master developer with operations in over 40 countries. They are a very experienced master plan developer, and I think impressed the state Land Board significantly about their capabilities and what they can bring to this market. We are delighted to have Lend Lease as a development partner on that project, and it will stay together with the state looking very forward to what opportunities might exist for their development out at the Lowry Range.

Additionally we appointed new auditors, GHP Horwath, effective for this quarterly review, so you will see a new auditor opinion as we finalize our year-end on August 31. On January 11, one of the more significant issues is that we had requested a concurrent letter with the SEC, and the SEC informed the company that its 2006 annual report on Form 10-K contained an error and, therefore, could not be relied upon. This error was relating to a contingent obligation payable in the event of a default by High Plains A&M, and High Plains A&M is the entity that the company purchased the Arkansas River asset from. The liability account relating to that the direct liability count to that and the related contra equity receivable account were incorrectly reported on the Company's balance sheet based on current US accounting rules. The company has removed these from the balance sheet as of August 31 in our Form 10-K for the three months ended November 30, 2006 and will amend its 10-K as soon as practical.

What is the effect of that in the presentation restatement?

Let me get to that in a little bit. Let me run through this, and then I will come back to what that effect has on the balance sheet on a restatement basis.

Some of the other significant events are that we have delivered 10.7 million gallons of water in the first quarter of 2007 compared to 13 million gallons for the first quarter of 2006. This was down a little bit predominantly because of seasonality issues, and we have had a fairly wet winter here in Colorado.

And then the other material issue was that we began depreciation of certain assets that were acquired in the Arkansas River acquisition, which account for about $100,000 of additional non-cash expenses to the P&L. This is a little bit -- if you advance to the next slide, you will see a map that really outlines some of the company's activities and where we are focusing most of our energies and outlines. Where we are at we are a little bit south of Interstate 70, a little bit East of the outer belt loop E-470. The shaded areas really indicates our service area with together with the State Land Board's Lowry Range property. The stone colored area is the two parcels of property that the Company currently has in its service area with the Lowry Range, and the pink shaded region is our target service area, which also includes another four sections from the State Land Board's Lowry Range. Those are the key focus areas where the Company is looking at its target service area in the Denver Metropolitan area.

Also noted on the map are the Sky Ranch project, which we have an existing service agreement, as well as the Arapahoe County Fairgrounds, which we added additional infrastructure in 2006 to extend services out to the Arapahoe County Fairgrounds.

The next slide really depicts a little bit of a statewide picture on the East slope of the state. Just taking a look at where the particular service area is in relationship to the Denver Metropolitan area, as well as where our recent acquisition in the Fort Lyon Canal system is, and what we're looking to do is not only provide water service from that acquisition to the Denver market, but also expanding that market to other markets in the Colorado Springs region.

I will talk a little bit about some of the specific projects that we have. Sky Ranch, we continue to work with the developer of Sky Ranch, which is Neumann Homes and Icon on the project timelines and construction of facilities and when they would like to start that project. The project is currently in an inactive state. The Company has an existing service agreement where we are reserving a portion of our portfolio for service to this particular project. And in exchange for doing that, the developers are required to make certain payments to the Company in relationship to reserving that portfolio. There is a $50,000 and $10,400 payment due annually. Those payments for 2006 are past-due, and Sky Ranch is in default on those payments. The service agreement has an effect on the service agreement. We still will have a service agreement with Sky Ranch. It will remain in effect.

What the risks for the development project is that it risks the availability of a portion of our portfolio that was going to extend water service beyond an initial level of service. In addition to the service agreement that we have with them, the Company has entered into an installment purchase contract with Sky Ranch where we are buying the water that needs to be -- the real property there. We are buying that in installments. We have made two payments to that. We have made our third payment to them and are awaiting them processing our water rights warranty deed from that.

We continue to work with Neumann and Icon in this endeavor to figure out what they would like to do with the project and how they would like to reposition that, and we will continue to keep you updated as to those conversations.

Let's talk a little bit about the Denver housing market, what are some of the opportunities and concerns in the Denver housing market. Most of what the Company does is provide water service to new growth areas, so we keep an eye on what is happening in the local market.

Colorado is still high in the foreclosure that we rank number two in the country in 2006 with a total foreclosure of just over 68,000, which is a large increase over 2005 -- 65% increase over 2005. The highest percentage of these foreclosures are in the entry-level market. Housing costs less than 199,000. And the main reason is still generally believed to be creative financing structures that were offered over the last three or four years with low down, zero down and very leveraged adjustable-rate mortgages.

Interest rates continue to hover at relatively modest levels approximately 6.2% for the month of January. This is a reiteration of some of the stuff that we had had at our annual meeting. We had a little bit of timing issue with a lot of the snow that we have had being able to get good data on what the new housing starts are. But as far as third quarter of last year, detached home inventories for single-family detached homes was actually down slightly in 2006 compared to 2005 to 7380 units compared to 8142. So it is down slightly on the inventory supply.

On the other side of that, the attached housing market is up in its inventory of supply from the same period in 2005 to about a 17.6 month supply, over 13 month supply. So we have a very healthy inventory level of the attached products and are still at very modest levels on the detached market.

Annual housing starts for -- we are breaking this up into two categories now. Annual housing starts for the entire property front range, which will include the Denver area, as well as the Colorado Springs market segment, and then housing starts here in the Denver Metropolitan area. Housing starts in the front range, which includes Colorado Springs, are in line with estimates, about a 9% decrease. We are at 29,000 compared to 32,000, and then housing starts for the Denver Metropolitan area are down slightly about a 3% decrease from the same period in 2005 at [18 9]. Total forecast for 2006 was right around 20,000 units, so we were looking at coming in at our forecast of near 20,000 units for 2006. As we update this information, we will make it available on our website.

Some of the other opportunities in the area, we still have continued strong growth and very low unemployment in the Denver Metropolitan area. We added nearly 20,000 jobs, which is really in par with what the forecast was and consistent with what has happened in the recent years. Unemployment rates for the Denver Metropolitan area are about 4.1. Colorado on a statewide basis is 3.9, and that compares to a 4.5% rate on a national scale. Average monthly employment is up 1.9% for year-to-date over same period in 2005.

What I would like to do is just get it to the specifics of the actual financial report. Summary of results. 1 million gallons of water delivered. First quarter of 2007 we delivered 10.7 compared to 13 and 13.6 over the two prior periods, so we are down slightly in terms of water delivery. It is mostly due to seasonal issues. Water usage fees are down slightly less than the actual water deliveries just principally due to increases in water usage fees over the same period, but 35,000 compared to 38,000 and 39,000 in prior periods.

Do you again want us to hold questions until you're done, or (inaudible)?

If you could, and then I will go back to the slides with each individual question.

A summary for the total revenues were in line with what we had in prior year, 63.7 compared to 65 in the prior year. Then you look at general and administrative expenses, were up significantly in general and administrative expense, and there are really two principal areas for the increasing fees predominately due to the acquisition of the Fort Lyon's water. We have water assessments, which are our responsibility, and those water assessments are fees that are going to be levied by the Fort Lyon Canal Company for general maintenance of the Fort Lyon Canal, and our first quarterly assessment was $75,000. We estimate that to be pretty in line with the $75,000 for each of the remaining three quarters. And then a higher franchise tax fee is due to the acquisition we have higher franchise fees in the state of Delaware and then nonrecurring professional fees in terms of the asset acquisition. So those were really the three categories for the increase in the G&A expenses.

Taking a look at our overall net loss, numbers were up significantly in net loss in the two two categories, one because of increased G&A expenses and also the non-cash depreciation costs that we will be incurring associated with the acquisition of 455 compared to 205 and similar levels in 2005.

Current assets. What we are seeing on the current assets side are really just the use of the Company's capital. Between 2005 and 2006, the Company invested about $2.5 million into expanding its infrastructure to provide water service to Arapahoe County Fairgrounds. And so we are looking at cash and cash equivalents of about $2.67 million compared to $3.12 million at the period ending in 2006.

Investments in water and water systems, up substantially in fiscal year-end 2006 and 2007, principally due to the Arkansas River acquisition, and then an additional investment of $2.6 million in the Arapahoe County Fairgrounds system.

On the next slide, total assets again up significantly over 2005 principally due to the acquisition in 2006. In total, equity similarly we -- due to the acquisition and issuance of the additional 3 million shares for that acquisition increased total stockholder equity.

So with that, I guess I will conclude the formal presentation and really open it up to some of the questions that we have. We will have questions both in terms of the folks that are listening online, as well as people that are here in attendance in person.

So if you want to go ahead and go back, I can certainly try and answer some of your questions.

I will start with the first question relates to what the effect of the restatement is?

Okay. The question is, what is the effect of the restatement to the Company's balance sheet?

The restatement really focused in on one particular issue. In the High Plains acquisition, High Plains had some existing mortgages on the assets that we acquired, and the Company agreed to allow those mortgages to stay in place as long as the Company was allowed to collateralize some of the consideration that was given to High Plains in exchange for those assets. They will pay those mortgages off on their due course, and they are responsible for those. The Company did not assume those liabilities. And when we were reporting that, the literature really was not all that clear in terms of how we were to account for that.

There is two ways to account for it. Either a disclosure on the financial statements and letting everybody know what that obligation is and what the collateral instrument is, or taking it to the next level, which would be to make that presentation on the balance sheet. And the Company took a conservative position by reporting that and making that position known to our stockholders on the balance sheet, and stocks concurrent from the SEC as to whether or not that was the correct accounting methodology for that. The concurrence that it was.

In that review process, the SEC came back under the determination that said that it is not likely that that debt will be -- until such time as it is likely that the Company may have to assume that debt, reporting that presentation on the face of the balance sheet is incorrect. And so what we will do is we will remove that portion together with the counteracted receivable on the balance sheet. So that is the form of the restatement.

We are still reviewing some of these accounting issues with the SEC. So we will wait until (inaudible) finalize the (indiscernible) from the SEC and then take a look at a restatement of the balance sheet. But it really has it does not have any impact on earnings. It does not have any impact on the presentation, other than where that disclosure issue was on the third-party debt. It is not Company debt. It is really debt that is maintained and owned by High Plains A&M. It is a good question.

(inaudible question - microphone inaccessible)?

The additional CapEx on that is probably around between $250,000 and $300,000 and predominately weighted into assessments to the Fort Lyon Canal Company.

(inaudible question - microphone inaccessible)?

Good question. The question was, if we have a net loss in the first quarter of $455,000 and then cash and cash equivalents of about $2.67 million, what is the outlook for the Company on a roll-forward basis?

We will have a net cash outlay of about $1.1 million a year, so we have got a little over two plus years in terms of cash outlay. The net loss is a combination of not only cash net loss but accrual net loss for depreciation expense, so we have a higher depreciation expense on assets that we acquired. The cash position, the Company feels confident of its cash position. At such time as it becomes an issue for cash positions, we will look at opportunities for increasing the cash position. But right now we feel comfortable moving forward with our cash position and our current burn rate.

Is the current burn rate one that is likely to sustain over the balance of the year?

Yes, I feel very confident about that. If we have any additional capital expenditures, if we are looking at starting a project where we would need to invest in infrastructure to expand those facilities, our agreements with our water service providers where we are providing service is that they are purchasing taps from the Company, and those taps fund a lot of those acquisitions. So we feel confident on matching the capital outlays with the timing of the inflows of those coming in.

Do we have any questions online? Kevin? Okay. Yes.

(inaudible question - microphone inaccessible)?

The question was on the Sky Ranch update as to what the level of activity is, and do we have any indication from the developer as to what their activities are going to be? We have been in contact with them, and we've had a number of conversations with the principles of Neumann, as well as representatives of Neumann, and they have not given us any indication of how, if or when they are going to move forward. They have indicated that they may be interested in looking for alternatives for that particular project. Whether that means that they would like to bring in a development partner or whether they would like to move their interest to somebody else, we have not found out what their overall opportunities are going to be. But I think they are going to pursue all of their interests, whether that is that they want to move forward and develop the projects themselves, partner with the project or sell the project. I think they are exploring all of those options. Yes?

(inaudible question - microphone inaccessible)?

The question was, what is the status of the Paradise asset? The Paradise asset goes through every six years we go through something known as a quadrennial diligence application, and that is where you go through a water court area and assess what if the owners of this condition (indiscernible) done in the last six years really to advance the development of that asset?

The Company does do a number of activities on that asset. It is a very valuable asset to the Company on the West slope. We have right of way permits from the Bureau of Land Management that we maintained. We have worked with specific interest on the West slope. That asset will specifically be used along the West slopes that we look for finding markets for that. We've had a number of meetings with entities that have water rights on there that have conflicting water rights. This year in our diligence application, we had two opposers that filed statements of opposition on that. We have met with them on a number of occasions, and our counsel, our water counsel, is working with their water counsel for some stipulations that may remove their statements of opposition. We do feel confident in our development and diligent pursuit of those assets, and we will continue to diligently and aggressively defend that asset.

That is more a long-range asset for the Company. We look at really developing that market on the Western slope. We have a number of creative opportunities that we would like to explore on being able to use some of our assets on the East slope and maybe transfer some of the agricultural interests or making opportunities available for use of that West slope asset on the West slope. But there is a number of areas that we might put that to beneficial use. Yes?

(inaudible question - microphone inaccessible)?

The question was, we have acquired a good and significant portfolio of assets over the recent years and had a bit more of a challenge in monetizing those assets to the market either through the wholesale market selling water directly to if I paraphrase your statement, selling water directly to municipalities who are selling it to the retail customers. The Denver area continues to be a water short area, and there are -- it is kind of a fractionated water market area. We have over 55 different water providers here in the Metropolitan area, and they all compete for acquiring new water supplies. They all are responsible for providing water service to their own geographic areas. And so we have pursued both the wholesale and the retail market. Wholesale market being that we look to assist other cities and municipalities who are water short to be able to provide water to those cities and municipalities. And then also look to work directly with landowners and developers who wanted to build on particular parcels of ground to be able to provide water service to those entities.

We have a very -- our assets are located in a very good growth corridor where a lot of the Metropolitan area is growing out to that area. As evidenced by the State Land Board's request for proposals, they are recognizing that the market has grown out to the Lowry Range and the opportunities of serving directly customers that are now within our service area or directly adjacent to our service area, has been a migration, an orderly migration of growth in the Metropolitan area. And so that has continued to happen.

We have development that is occurring in our areas, and so we feel that we are very attractive to landowners and developers that are looking at developing water or developing projects out there that we could be their water provider.

On the wholesale side with municipalities and other cities and other water providers, a lot of those cities and municipalities are working through inventories that they had in terms of available water supplies. And so as they were working through their inventory of water supplies, they always look at us as an option for water delivery, but we will also look at their own existing supplies together with whether we taught them to do an independent system? That market is still maturing. You have a number of districts that are running through their limits of available water supplies on their inventories with opportunities to continue to grow that may look at partnering with private water developers like us to be able to bring a new water supply in there, and we are very aggressive in those markets.

So we are going to continue to support those markets and be an alternative for them. Not only do we believe we are a very good low-cost alternative, but we have a very high-quality portfolio of water. With the acquisition of our Arkansas River asset, we have a very senior portfolio that we are now bringing into the equation and being able to assist some of these providers that may only have a nonrenewable supply or a very limited supply that they are seeing their wells decline or limitations on their ability to continue to grow. So those are some of the markets that we are going to be expanding to now that we have a renewable water component in bringing in a larger inventory of supply that we can take a look at maybe possibly replacing some city municipality water supply and then giving them new water supplies for the future if their water supplies are in jeopardy in anyway.

With that being said, you have been in the surplus supply position for a large number of years, and the commercial sale of water has either not occurred or has been diminishing as represented in your first-quarter results, and you have got three years of the decline in gallons of water shipped Q1 '07 versus '06. It may be seasonal, but it is also 20, 25%. What is likely to change? Here you have had 3 million shares and (inaudible) has gotten another big slug of water, but it is not water that we have got to build a pipeline to get it up here. You have got a lot of -- every other activity has had litigation associated with that it and (indiscernible). What is likely to change the rate at which you can commercialize on the water assets you have?

Good question. I'm going to shorten and condense that for the people listening in on the conference call.

The question is, we are continuing to pursue these markets, and what are some of the things that we can -- shareholders can look to that may indicate changes to how the rate of absorption that we can have or expect to have with quantifying these assets? Together with what are the seasonality issues?

Let me address the seasonality issues. The seasonality issues will vary significantly. So the water deliveries, whether we're down this quarter on water deliveries or up in a particular quarter of water deliveries, that is really not going to be eating into the portfolio of available supplies that we have. Those are the connections that we already have. So you are going to see seasonal variations on that.

Really what we're looking at is how we accelerate or how we take a look at monetizing the inventory of supplies that we have accumulated over the years. And really what you will see here is that the Metropolitan area has been steadily growing into a water supply problem. And as the area continues to grow, it becomes more and more of an issue for developers and cities and municipalities, and it is really in two areas.

One will be on the reliability of the existing water supplies. Much of the growth of the Denver area has been in the South region where you have Denver Basin water, much like the Denver Basin water that we have. We have a Denver Basin component of our water supply. And they have been developing houses on that supply over the last 40 years. That supply is generally thought to be a nonrenewable supply. It does renew, but it may be renewing at a rate slower than people are withdrawing that out. So what you see is a growing problem of water availability in some of those municipalities.

They are going to continue to look for these renewable water supplies. In the state of Colorado, all water supplies are appropriated. So what you're dealing with now is secondary market. You have got to buy a supply and transfer that supply from what is one use to another use, which that ultimate transfer of use is going to be municipal/industrial. And a lot of the cities and municipalities are looking for their ability to do that. These renewable supply components, much like the High Plains Arkansas assets, are very costly. Very high barriers to entry. The Company spent a tremendous amount of energy and a tremendous amount of corporate resources to acquire that water supply. It is very difficult for a given city or municipality to do that on their own. If you have 55 water providers, 49 of the 55 water providers are going to serve connections less than 10,000. And so they have a very difficult time finding the ability to develop those projects themselves, and they have historically had a tough time aggregating their resources to cooperate to be able to bring new water supplies into the area. And that is a function of really the nature of the state of Colorado. The sales tax incentive nature, the competitive nature of individual cities and jurisdictions where they compete for attracting new growth.

So the Company offers a unique balance to that because we have the ability through size and through the ability to bring investment resources to that to be able to solve that for individual municipalities where they can maintain their autonomy. So we think that those are great positionings of those assets.

The Arkansas acquisition greatly enhances our portfolio by bringing a renewable supply. That was one of the key elements that we looked to bring in and demonstrate not only to the state of Colorado and anything that they are considering on the Lowry Range, but other municipalities in the region that we have an adequate supply of bringing that forward. So we will continue to penetrate that market.

Other than to say what the growing problem is in the Denver area and the fact that the region continues to be water short, I think we are on the right side of the demand curve for that, and the Company continues to be very aggressive on that.

Okay. If we could take some calls online.

(OPERATOR INSTRUCTIONS).

I think our audience in attendance may have exhausted some of the same questions that those listening online would have. Certainly if something comes up, please feel free to give us a call, and we would be happy to respond to any questions that you might have.

Since there are no further questions, we would like to proceed with the portion of the meeting that comprises our annual meeting of stockholders. On the agenda for this annual meeting is the consideration of two proposals as recommended by the Company's stockholders by the Board of Directors. The polls are now open for voting and will be open for voting during consideration of the proposals. I will declare the polls closed for voting subsequent to the discussion of the proposals.

I now call Mr. Lehman, Secretary of the Company, to the podium and this meeting to identify these proposals.

Mr. Chairman, I present to the meeting the first proposal which is described in the Company's proxy statement dated December 19, 2006 and is presented at this meeting by the Board of directors. Proposal number one is for the election of the following nominees to serve on the Board of Directors of the Company until the 2008 annual meeting of stockholders. Those persons being Mark W. Harding, Harrison H. Augur, Mark D. Campbell, Richard L. Guido, Peter C. Howell and George M. Middlemas.

The Board will call for a motion of the nominees so named as directors of the company. Motion. Okay. Second? The motion has been made and seconded. No other nominations having been received pursuant to the procedures set forth in the Company's proxy statement, I declare the nominations closed.

Mr. Secretary, please identify the next proposal.

Mr. Chairman, I present to the meeting the second proposal, which is described in the Company's proxy statement dated December 19, 2006 and is presented at this meeting at the recommendation of the Board of Directors. Proposal number two is to ratify the audit committee's selection of GHP Horwath, P.C. as the Company's independent auditors for the current fiscal year ending August 31, 2007.

The Board will call for a motion of adoption of the proposal to ratify the selection of auditors. So moved. Seconded? Thank you. Let's proceed with the voting on election of directors and edification of selection of auditors.

Mr. Secretary, please identify the voting required to approve each of the proposals.

Mr. Chairman, for proposal number one, the election of each director requires the affirmative vote of a plurality of the shares represented in person or by proxy at this meeting and entitled to vote for the election of directors. Proposal number two, the ratification of the selection of the independent auditors, requires the affirmative vote of a majority of the shares of common stock represented in person or by proxy and voting at this meeting.

If you wish to vote and have not done so already, now is the time to return your proxy card or ballot to the (inaudible). If you have previously returned a proxy card and do not wish to change your vote, you did not need to turn in a ballot at this meeting. If you have not yet turned in a proxy card or if you are a stockholder of record on December 1, 2006 and wish to vote your shares in a manner different than you have indicated in your proxy card, you can raise your hand so that the inspector can give you a new ballot.

If there are any questions regarding the voting procedure or any stockholder wishes to comment on or raise any questions regarding the proposals being voted on, please raise your hand or push the pound key on your phone for the conference call identification. Being none. Being no further discussion on the proposals, we will now close the polls.

Inspector, have you completed your tabulation of voting?

Mr. Chairman, based on my tabulation, a plurality of the shares represented in person or by proxy at the meeting have voted for the election of each of the Company's nominees for directors of the Company. Accordingly, Mr. Harding, Augur, Campbell, Guido, Howell and Middlemas have been elected as directors.

Proposal number two, the ratification of the selection of auditors, has received the affirmative vote of a majority of the shares of common stock represented in person or by proxy in voting matters.

Thank you. Based on these results, I hereby declare that the nominees for director have been duly elected and that the appointment of GHP Horwath to audit the financial statements of the Company for fiscal year ended August 31, 2007 have been duly ratified. I'm aware of no further business that should become before this annual meeting. I would like to thank you all for coming to this meeting and for participating in the conference call and the webcast.

I would also like to express my appreciation for all of our stockholders who submit their proxies but were unable to be here in person. The directors, the employees and the officers of the Company appreciate the loyalty and confidence of our stockholders. I will entertain a motion to adjourn the meeting.

I hereby adjourn this meeting. For those of you that are logged on certainly feel free if you have any questions, you can give us a call and follow-up with any questions you might have. The webcast will be available on the Company's website for rebroadcast in the event that anybody wants to replay that. Thank you, all.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines.